Summary: The S&P 500 reached a fresh record high, bonds and gold rallied while the dollar softened after inflation moderated last month, thereby reducing concerns about the urgency for tapering the Fed's stimulus program. The Nasdaq 100 trades lower on a continued growth to value rotation. Oil rose as the dollar weakened despite Washington urging OPEC+ to revive production more quickly to curb prices. Stocks in Asia traded mixed overnight with Chinese regulators taking a closer look at insurance technology platforms while calls for a PBoC rate cut grew to counter negative impact of virus outbreaks.
What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - yesterday’s CPI report failed to be a spectacular and game changing event for markets. US inflation remains high, but it is not getting worse, and the low inflation observed in the US and Japan begs the question whether the US is an outlier. US yields are coming down a bit but interestingly enough Nasdaq 100 futures are under pressure trading below the 15,000 level this morning while the S&P 500 looks much stronger and closer to its all-time high. The next key support level in Nasdaq 100 is around the 14,895 level.
EURUSD managed to bounce higher from key support at €1.17, the March 31 low, following softer-than-expected US inflation data. Overall, the cross may now be looking at the support-turned-resistance level at €1.1752.
Gold (XAUUSD) found a bid after moderating US inflation eased taper fears while also softening the dollar. The sentiment remains fragile, and the market may still trade nervously ahead of the late August gathering of central bankers at Jackson Hole, a forum often used to announce pivotal changes. In the short term, the yellow metal needs a solid break above $1760 to ease worries and potentially force buying from recent short sellers. Key for bulls is to see ten-year real yields stay in the region of –1% and avoid further dollar strength. (Note: EURUSD managed to hold key €1.17 level yesterday).
Crude oil (OILUKOCT21 & OILUSSEP21) is holding onto yesterday's gains that were driven by a weaker dollar and growing belief the demand rebound can withstand the latest wave of Covid-19, that has led to renewed restrictions of movements. An announcement from Washington’s urging OPEC+ to revive production faster to curb rising gasoline prices initially sent prices lower before being ignored. Not least due to expectations gasoline prices will drift lower into the autumn and also considering the tightness in oil markets can be partly blamed on Biden’s reduce of support for domestic oil production, down close to 2 million barrels/day from the March 2020 peak. Focus today the monthly oil market reports from the IEA and OPEC for any signs of changes in their demand outlook.
Corn, soybeans and to a lesser extent wheat trade lower before a key monthly supply and demand report (WASDE) from the US government. This following a period of mostly rangebound trading in corn and soybeans on improved crop weather while wheat remains near its recent peak following downgrades in Russia and Europe. The USDA is expected to trim its corn yield by 2.1 bu/acre to 177.4, and with that the expected production level is surveyed to decline by 194 million bu to 14,970 million. If confirmed the market will remain tight with little room another South American weather upset into 2022.
What is going on?
US ten-year bond yields firmed overnight after moderating inflation and a very strong bond auction helped trigger an intraday 7 basis point yield drop to 1.3% before firming in Asia. Overall, it looks unlikely that these two developments can derail the current momentum towards higher yields, especially considering the late August gathering of central bankers at Jackson Hole, a forum often used to announce pivotal changes. The key level of resistance in ten-year remains 1.37%, yesterday’s high and the 38.2% retracement of the March to July yield slump.
Recap of earnings from Vestas, NIO, and eBay. Vestas disappointed investors yesterday cutting revenue guidance for FY21 and lowering EBIT margin guidance on higher-than-expected commodity prices such as steel. Vestas shares were down 2%. NIO reported 21,896 deliveries of its EVs a 9% q/q increase and reported revenue of CNY 8.5bn vs est. 8.3bn. Gross margin for the quarter was 18.6% vs est. 19%. Despite mixed earnings the Q3 revenue guidance of CNY 8.9-9.6bn vs est. 8.9bn and lower Q2 loss sent the shares 3% higher in extended trading. EBay disappointed massively on active buyers with 159mn during the quarter compared to 172mn expected, but despite lower engagement revenue and earnings were slightly better than expected and guidance for Q3 was also in line. The company said it will expand its share buyback program.
Cryptocurrencies - After the major hacker attack on the Poly network on Tuesday where cryptos worth more than $600 mn were stolen, hackers have now returned around $250 mn. Some in the crypto community suggests that the hackers want to teach Poly a lesson regarding security issues in the network - and of course this underlines the increased security risks when digitalizing assets in general.
What are we watching next?
Earnings to watch this week. Q2 earnings have been strong we expect earnings releases this week to reflect this. Today is the big day with Orsted on the green transformation in Europe, Walt Disney on video streaming and its attack on Netflix with its Disney+ offering. We also have earnings from Baidu and iQIYI which are currently in the middle of the Chinese technology crackdown which is centered around information and communication platforms.
Economic calendar highlights for today (times GMT)
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